Friday, November 19, 2010

How I would "fix" the budget deficit

I haven't heard from anyone yet about their plans, but here is what I would do, following (mostly) the NY Times choices mentioned previously.

1. Domestic programs and foreign aid.

I would leave foreign aid largely in place, though I am sure that some of it is too heavily tilted toward the military. The US gives far less than its share, in terms of the size of our economy, to programs that really aid people and not police forces.

I certainly would not cut budgets for national parks and aid to states. These are programs which actually benefit the non-rich: people who don't have vacation homes or villas or yachts. The current pre-occupation with so-called "earmarks" is simply neurotic. Most earmarks are programs and financial support for highly worthwhile projects such as libraries and museums, as well as construction projects which can help put people to work at a time of high unemployment. In any case, the amount of money to be saved by axing all earmarks is too small to be significant.

Reduction of the Federal workforce is another "stalking horse" for Republican plans to make government ineffective and prevent regulation of industry. As usual in these things, the employees who are most likely to be cut are people like meat plant inspectors and employees of the EPA. The brothers-in-law of political hacks are probably the last to be canned. Let's not be fooled by this. Contrary to the right-wing propaganda, the Federal government is far more efficient that almost any large corporation like Citibank or General Motors, or Halliburton/Brown&Root.

There are two things I would cut in this category: farm subsidies and government contractors. As even the International Business Times points out almost all of this subsidy goes to huge agribusiness concerns, not to family farms. These companies simply do not need the subsidies, since they are quite profitable, busily using vast amounts of petrochemicals and energy to produce excesses of fattening and otherwise unhealthy products (e.g. high-fructose corn syrup). Presumably this would also eliminate any kind of subsidy for the production of ethanol, a worse than useless boondogle if there ever was one.

As far as government contractors go, the system is so unbelievably corrupt that it would be wise to start over by eliminating it completely. There is no evidence that privatization saves any money. It might if there was universally and tightly controlled competitive bidding, but this is hardly the case (see this study, for example). I don't personally believe that eliminating all these contractors will save the huge amount of money that the Times claims, since the products and services will have to be provided in other ways in most cases. But the current system is very much subject to the "revolving door" syndrome, where people shuffle back and forth between government agencies and private enterprise. (If you have access to the Washington Spectator, the Nov. 15 issue has an article documenting several egregious cases of this in the military sphere. We all know about $600 toilet seats of course.)

2. The military

I chose to make every one of the cuts offered by the Times. The military budget has become obscenely large yet curiously ineffective. We are buying planes, tanks and boats to meet non-existent threats. In fact, some of the programs the Pentagon doesn't even want. The reason these programs are financed is that they bring money to the districts and states of our reps in Washington. Now I'm not against employing people, but military spending is an inefficient way to go about doing it: see this article from Zero Hedge. This is not a new observation. Also, the "Star Wars" anti-missile program is another project that is immensely expensive, guards against a no more non-existent enemy, and is considered by most scientists to be nearly impossible to perfect. (Dr. Theodore Postol has published a lot of damning evidence to show these programs are frauds; here is one.)

The wars in Iraq and Afghanistan are losers and must be ended ASAP. People who voted for Obama and the Democrats a few years ago expressed the majority view then, and it is still the majority view. The more we use the military to fight terrorism, the more it costs us. The same was true for "insurgency" in the last round of wars in Indo-China. We can expect very little truth to come out of the government concerning how these wars are progressing, so it is wise not to fight them. Ending the permanent state of war will save lives and money, and may even make us more secure. Much can be said about this, but I will resist now.

3. Health care.

Most of the industrialized world spends far less on health care than we do, and achieves better results. Obama's recently enacted plan is barely a beginning. We should have had single-payer, but what was passed is still is a good step. We need to train more family doctors and we need to have a rational policy emphasizing preventative care and rational cost-containment. We still have healthcare rationing by income or good fortune. We need "Medicare for all." What we don't need is healthcare according to the medical and insurance lobby, which is what the Republicans want. Increasing the Medicare age to 70 is simply an attack on the non-rich and elderly -- it's just the opposite of what must be done. I don't think that simply capping Medicare growth to a percentage point above GDP growth can solve the problem unless there is a clear way of implementing this cap without simply denying people the medical care they need. The doctors lobby (which actually favors Obama's plan) is too powerful to fight on salaries, while Big Pharma also will effectively resist caps on their huge profits. Thus, a cap simply means more and more of the healthcare rationing we have right now.

We have to face the reality that providing for the "common good" includes providing healthcare for everyone, and this will necessitate sharing of the expenses. This will mean shifting some of the burden to those who can most afford it: people with large disposable incomes. We have to increase the Medicare and Social security tax base and make the taxes that finance it more progressive.

4. Social Security.

This is really easy to fix: tax all income. I repeat, ALL INCOME. At the moment all we tax is earned income up to about $106,000. The current rate is 12.4%, split between employer and employee, plus another few points for Medicare. We can keep these rates, but should apply them to all income, including stocks, bonds, dividends, capital gains etc. etc. This will solve the Social Security problem, without any need for means testing or raising the retirement age. In fact, Social Security already has some means testing, since retirement income becomes taxable at certain rates for higher income retirees. Eliminating the income cap on taxation will also add to this form of means testing.

5. Estate taxes.

The Founding Fathers were very clear on the need for preventing massive hereditary wealth. (See this article in The Economist.) We should have steep estate taxes, while providing a reasonable initial exemption of several million dollars. If you want to make multi-millionaires of your children, do it while you are alive. There is a lot of nonsense about family farms and small businesses, but this is baloney statistically. Almost no privately-owned "family" farms and small family businesses are worth more than a few million dollars (few are worth even that) so there really is no problem. Let's be clear about this: the people who are bent out of shape by the inheritence tax are rich people who want to pass on vast inherited wealth to those who didn't earn it.

6. Capital gains and dividend taxes.

Beginning in 2011, capital gains taxes will rise 5% (to 20% on higher income taxpayers), and dividends will be taxed at whatever the marginal (highest) tax rate is for the taxpayer. I favor keeping these higher rates. No one should pay lower taxes on some incomes -- especially "unearned" income such as stock speculation and investment dividends. This is an insult to working people whose incomes derive from salaries. To add to the Times' choices, we should tax stock and bond traders' incomes as regular income, not as capital gains as is now the (disgraceful) case.

7. Other income taxes.

I favor letting the Bush tax cuts, which primarily favor the wealthy, expire; actually, I favor allowing the tax cuts for personal income above say $250,000 to expire. I'd even let that go up a bit to say $500,000. People making this kind of money made out very well during the Bush years, but enough of that. Percentages are a bad way of evaluating incomes in any case, since it is the disposable income that really matters: the amount a person makes above the reasonable costs of living. I also favor imposition of some sort of surtax on incomes over 1 or 2 million dollars. Why? Because I believe in transfer of wealth (oh horrors) from the very wealthy to the much less well off. At one time the story of Robin Hood made him a widely admired fictional character; since Reagan and the Wall-Street disco years of "greed is good" we have lost a lot of that sense of fairness. I personally believe that the vast majority of people who make over $500,000 a year are overpaid (unless their profession is very dangerous), and those who earn less than $40,000 are probably underpaid.

For reasons explained above, I also favor collecting Social Security (and Medicare) taxes on all incomes, with no upper limit.

8. Tax "reform"

I don't think the corporate tax is really an issue, since it gets passed on eventually. Ending the deduction for home mortgages for second and vacation homes is a good idea, as well as some sort of limit on the deduction for very expensive mortgages. The problem here is geographic. If you live on one of the coasts, especially in the San Francisco-LA or Boston-Atlanta areas, even modest homes are very expensive. Any upper cap on mortgages should take the mean -- not the median -- home price in the area into account.

9. Other new taxes.

For many reasons I favor a carbon tax -- with tradeable carbon "credits". I also favor taxing banks that engage in risky speculation. Actually, I favor a new Glass-Steagall act to prevent banks from taking these risks in the first place. Glass-Steagall prevented bank meltdowns for all the years it was in effect; it was repealed with Clinton's blessing, and look at the mess we're in now.

The Times didn't allow me to opt for another tax which I consider a very fine and fitting idea, and which will bring in lots of revenue. It's the "Make Wall Street Pay" tax on stock and bond transactions: 1/4% on each side of every sale (buyer pays 1/4%, seller pays 1/4%). I will discuss this in a later blog. Real investors will hardly notice it, but day traders and other speculators will have to pay for churning the market.